Company Law Issue Case Study 2022

Running head: COMPANY LAW
Company Law
Name of the Student
Name of the University
Author Note

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Question 1
Issue
The issue arising from the given situation is whether the proposed share cancellation
would comply with the Corporations Act 2001 (Cth), and the steps DO would need to take to
cancel Max’s shares.
Rule
The removal of a director belonging to a private company needs to be affected in
accordance with the constitution and in the absence of such a constitution in accordance with
the replaceable rules provided in the Corporations Act 2001 (Cth) (CA). Any director who
has been removed does not have the right to restrict the company from effecting the removal.
However, he may have the option of availing remedy in the employment law. In case the
constitution is silent regarding the removal of a director or the company does not have a
constitution of its own, the removal of a director of a private company can be effected in
accordance with section 203C of the CA. Such a removal needs to be accompanied by a
general meeting that will be conducted in accordance with the constitution of a company or
replaceable rule provided u/s 135 of the CA. The removal needs to be carried out by the
shareholders by passing and ordinary resolution.
In case there is an absence of a constitution or an absence of a provision in the constitution
in relation to cancellation of variation of class rights, the same can be carried out by the
procedure laid u/s 246B(2) of the CA. Such a cancellation can be carried out by passing a
special resolution pertaining to the company. The special resolution needs to be passed at the
general meeting by the affected class holders. This cancellation of class rights needs to be

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accompanied by a special resolution as well as the written consent of the members with the
minimum of 75% of votes belonging to the affected class.
U/s 246F(1) of the CA, a notice needs to be lodged with the ASIC by the company setting
out all the particulars relating to any division of the shares among the classes in case there
was no previous division being made with respect to the shares.
U/s 246B(3) of the CA, the company is required to provide a written notice
acknowledging such cancellation or variation to the members belonging to the affected class
within a period of 7 days subsequent to search cancellation or variation.
U/s 246D of the CA, the right to apply for the setting aside of a variation by any of the
members has been provided. Members who disagree with their rights being cancelled and has
been owning at least 10% of the votes with respect to the class can apply to the court for the
setting aside of the cancellation. For the purpose of effecting such a setting aside of the
cancellation the Court needs to be satisfied that the cancellation would affect the applicants in
a detrimental way. Such an application is to be made within one month of such variation.
However, if every member belonging to a particular class of shares consent to such a
cancellation, the cancellation will be given effect from the date of resolution on the date of
consent or any other prescribed dates.
Application
In the present situation, Digital Optometry Pty Ltd (“DO”) has been registered on 30
November 2018 by Max and Lucy who were also the directors of DO. DO needs to be
governed by the replaceable rules of the CA. Both Lucy and Max was issued 500 “A” class
ordinary shares each with an issue price of $1.00 per share (fully paid). Max has been
entrusted with the management of the finances of DO and raising capital for the company.
Lucy would be responsible for managing the IT team employed by DO to develop the online

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platform. DO raised seed capital of $100,000 from Malcolm, a family friend of Lucy, and
Malcolm was issued 150 fully paid $1.00 “A” class ordinary shares. This Max had great
difficulty raising capital. Max was responsible for raising just $25,000 from one investor,
Cassie, who was issued 50 fully paid $1.00 “A” class ordinary shares. There has been
financial distress caused to the company and Lucy wanted to extend loan to the company.
However, the proposal has been declined by Max, which made Lucy to consider the
cancellation of shares belonging to Max and his removal as a director of the company.
Such a removal of Max as a director needs to be carried out in accordance with the
provisions laid down in CA. The proposal that has been made effecting such a removal needs
to done by passing a ordinary resolution by the shareholders in compliance with s 203C of the
CA. Again, the cancellation of the shares that has been owned by Max needs to be carried out
by the compliance of the provisions contained u/s 246B(2) of the CA by passing a special
resolution. The special resolution needs to be passed at the general meeting by the affected
class holders. This cancellation of class rights needs to be accompanied by a special
resolution as well as the written consent of the members with the minimum of 75% of votes
belonging to the affected class.
Again, a notice of such a cancellation needs to be lodged with the ASIC. U/s 246D of the
CA, Cassie has a right to apply for the setting aside of the cancellation. Members who
disagree with their rights being cancelled and has been owning at least 10% of the votes with
respect to the class can apply to the court for the setting aside of the cancellation.
Conclusion
Hence, it can be concluded that the proposed share cancellation would comply with the
Corporations Act 2001 (Cth), and the steps DO would need to take to cancel Max’s shares
will be as discussed above.

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Question 2
Issue
The issue arising from the given situation is whether there are any sections of the
Corporations Act which could break the deadlock and why they (or are not) viable options. In
the event that the Corporations Act doesn’t assist Bill, what will be the business solution to
the problem.
Rule
The court has been empowered to make an order u/s 233 of the CA in certain instances by
virtue of s 232 of the CA. Under this section, this power is conferred upon the court, if it has
been evident that the conduct of the affairs of the company, any actual as well as proposed
action or exclusion that has been made under the name of the company or any probable
resolution of the company fails serve the best interest of the company as well as the member
of the company or has been oppressive unfairly discriminatory or prejudicial to the company.
There are several instances that the courts may have been presented with instances where
the shareholder with equal shares in the company who are also the directors of that company
to have created a deadlock. Such a instance can be best explained with the case of Rayward v
Munstermann [2017]. In this case, it has been held that when both the directors of a company
are owning equal shares in the company, and they have been faced with a deadlock regarding
the decision where both of them are contradicting each other, the court would at first apply
the oppression test. The court would strive to determine whether the conduct that has been
proposed by each of the parties would have been resolved with an intention to serve the best
interest of the company. It will also examine that whether any of the resolutions that the
directors has been proposing are unfair. This needs to noticed that even if the director has
been complying with the fiduciary duty that he has responsible to ensure to the company, but

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his actions may still be oppressive to the members of the company. The conduct of the
company that has been alleged to be oppressive to the company may also be lawful. For the
purpose of rendering a company to have been acting in a manner that is oppressive if it has
been taken in a manner that is likely to cause detriment to the company. Any shareholder who
has been owning 50% of the shares may also avail remedy under this section as the 50%
share in the company does not confer the shareholder with the right to prevent such an
oppression. Before delivering any decision the court needs to ensure that there has been an
act of oppression against the members or the members has been acting in a way which has
been unfairly prejudicial. The court has wide discretion in providing an apt remedy to the
member. The last resort that the court might take in such a situation is the dissolution of the
company. Even the court may ask the individual who has been alleged to have acted in an
oppressive way, to sell his shares in the company. In all these circumstances that court may
fix a value, which is fair.
Application
In the present situation, the directors of a fireworks business namely Kaboom Pty Ltd that
has been established in 2000 were Bill and Ben. The company has been involved in the
production of fireworks. Bill and Ben both hold shares equally and the shares have equal
voting rights. This makes them the holder of 50% of the rights in the company. The company
does not have a constitution and hence it would be governed by the replaceable rules of the
CA. Ben has been killed in a plane crash while he has been visiting overseas on a holiday.
The death of Ben has conferred all the rights relating to the share in the company he has been
owning to his son Ken. Ken has been replacing his father Ben as a director in the company as
the same has been agreed by Bill. Ken has been considering the adoption of explosives
business. However, Bill has not been supportive of the decision as in his opinion this business
would pose certain risks to the company and that the core business of Kaboom Pty Ltd was to

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manufacture fireworks. However, all the meetings that has been organised for considering the
proposal has resulted in a deadlock as both the directors have been holding 50% shares.
In this case, Bill has an option of bringing a proceeding before the court for breaking the
deadlock u/s 232 of the CA. In this case the court will consider whether the acts of Ken have
been oppressive. As converting the business to explosives might pose a potential risk to the
company, it can be treated as oppressive. In such a case the court would ask Ken to sell out
his shares of the company for a price. The court may as a last resort dissolve the company.
This can be supported with the case of Rayward v Munstermann [2017].
Conclusion
Hence, it can be concluded that Bill has the option of approaching the court for breaking
the deadlock u/s 232 of the CA and the court may ask Ken to sell his shares if it has been
satisfied that the actions of Ken has been oppressive. As a last resort the court may order for a
dissolution of the company.